ENT 1-01
OT:RR:CTF:ER
H307832 ABH
Mr. David McGurk,
Center Director
Petroleum, Natural Gas & Minerals (PNGM)
Center of Excellence and Expertise
Office of Field Operations
U.S. Customs and Border Protection
Re: Internal Advice Request: Pipeline Inspection Gauges
Dear Mr. McGurk:
This is in response to the Petroleum, Natural Gas & Minerals (“PNGM”) Center of Excellence and Expertise (“CEE”) request for Internal Advice (“IA”) dated December 27, 2019, in which you seek clarification regarding reporting requirements for pipeline inspection gauges or pipeline intervention gadgets (“PIGS”). Our analysis is below.
FACTS:
A pipeline inspection gauge, commonly referred to as a “PIG,” is a device used to clean and/or inspect an oil and gas pipeline. The spherical or cylindrical devices manufactured today vary greatly in construction material, size, color, and accessory components. There are a variety of PIGs used in the pipeline industry, including utility PIGs, inspection PIGs, specialty PIGs, and gel PIGs. The most common use for a PIG is to clear the pipeline of debris. Smart PIGs are also commonly used to detect information about the pipeline. In order to verify pipeline integrity, the PIGs can collect information regarding temperature and pressure, corrosion/metal loss, diameter, bends, and curvature.
At issue in this IA are two different PIGs. The first PIG is the EDX, sold by Apache Pipeline Products. The EDX is a bi-directional cleaning PIG designed to clean the inside of a pipeline. The EDX is a cylindrical PIG, fitted with two guide discs, four sealing discs, and a variety of brushes, all affixed to a central steel mandrel. The EDX can be fitted with spring loaded block brushes or circular flange brushes. These brushes may have flat wire or pencil bristles, and may be made of carbon steel, stainless steel, plastic, or tin-coated bristles. The EDX can also be fitted with magnets to collect ferrous debris, or to provide a change in magnetic field to accommodate a separate PIG signaler detection device. Moreover, the EDX can be fitted with urethane “plow blades,” designed to remove paraffin wax and similar deposits from the pipeline, or for use in non-metallic or internally coated pipe where a bristle brush might cause damage.
The second PIG is a locating and tracking PIG sold by Enduro Pipeline Services (model number 380-12-AS). The Enduro PIG is an eleven-inch cylinder, three inches in diameter, designed to be mounted to another PIG to aid a user in locating a stopped PIG in the pipeline. The device is powered by eight AA cell batteries allowing up to 380 hours of operation. When powered on, the transmitter emits a 22 Hertz signal from within the pipeline, at intervals determined by the user. The default interval is a signal every 1.5 seconds. The signal can be detected by a user above-ground, using a receiver like Enduro’s ER-0402 (“the receiver”). The receiver emits an audible tone with each detected signal received from the transmitter, and an indicator needle on the receiver moves each time a signal is detected from the transmitter. Using the ER-0402 or similar receiver, a user can detect the transmitter in the pipeline from up to 40 feet away.
The Port of Houston received a request for Internal Advice regarding the entry and reporting requirements for PIGs in the case where a third-party company (contractor) is hired to run a PIG through the pipeline. The pipeline operators maintain records of all PIGs moving through their pipeline system into the United States. Two different scenarios will potentially occur. In the first scenario, the PIG will cross into the United States within the pipeline and will remain in the United States. In the second scenario, the PIG will move through the pipeline between two points in a contiguous country, but travel through the United States. The pipeline operator raised the following issues:
ISSUES:
Is entry required for the PIGs that cross into the territory of the United States?
If entry is required, is the pipeline operator also responsible to report a PIGs when it goes through the pipeline (similar to a carrier)? How is this reporting done?
If entry is required, what is the appropriate classification of the two types of PIGs?
LAW AND ANALYSIS:
Is entry required for the PIGs that cross into the territory of the United States?
As discussed above, two different scenarios will potentially occur. In the first scenario, the PIG will cross into the United States within the pipeline and will remain in the United States. For the PIG that remains in the United States, formal entry is required by the importer of record.
Upon importation into the United States, merchandise must be entered and payment of potential duties secured with a bond. 19 U.S.C. § 1484(a)(1)(A); 19 C.F.R. § 142.4(a). Under U.S. customs regulations, “[a]ll merchandise imported into the United States is required to be entered, unless specifically excepted.” 19 C.F.R. § 141.4(a). There is no relevant exception for PIGs and PIGs constitute “merchandise.” See 19 U.S.C. § 1401(c) (stating that “[t]he word ‘merchandise’ means goods, wares, and chattels of every description”). Accordingly, it is incumbent upon the importer of record to file entry for the PIG upon importation into the United States. The date of importation for merchandise imported by pipeline is “the date on which the merchandise arrives within the Customs territory of the United States.” 19 C.F.R. § 101.1. The fact that the PIG is being conveyed across the United States border via pipeline (as opposed to by truck or rail) does not change entry requirements.
For purposes of importation, a pipeline is considered a carrier. 19 C.F.R. § 18.0. In guidance issued on December 22, 1992, “Requirements for Pipeline Operators,” CBP stated that “[e]ntry must be made for every importation through a pipeline.” Requirements for Pipeline Operators, available at https://www.cbp.gov/trade/entry-summary/pipeline-monthly-entry-processing/pipeline-directors (December 22, 1992). CBP further stated that “[m]erchandise imported through pipelines without entry having been made is imported contrary to law . . . and all Customs laws and regulations dealing with such importations are applicable (see 19 U.S.C. § 1595A, 19 C.F.R. Part 162).” Id. In sum, a PIG that crosses into the United States within a pipeline must be entered in accordance with Customs laws and regulations. Accordingly, if a PIG crosses into the United States and the intent is to enter it into the commerce of the United States, an entry for consumption must be filed. See generally, 19 C.F.R. Part 141. If, however, the intent is to retrieve the PIG and export it back to Canada and all other legal requirements are met, an entry for transportation and exportation may be appropriate. See generally, 19 C.F.R. Part 18.
With regard to whether the pipeline operator or the vendor is required to make entry, section 484(a)(1) of the Tariff Act of 1930, as amended (19 U.S.C. § 1484(a)(1)) provides that only parties qualifying as the “importer of record” may make entry. Those qualified parties are identified as the “owner” or “purchaser” of the goods or a broker appointed on behalf of an owner, purchaser, or consignee under 19 U.S.C. § 1484(a)(2)(B). Owner and purchaser are further defined in Customs Directive, (“C.D.”), 3530-002A, dated June 27, 2001. Section 5.3.1 of the directive provides:
5.3.1 The terms “owner” and “purchaser” include any party with a financial interest in a transaction, including, but not limited to, the actual owner of the goods, the actual purchaser of the goods, a buying or selling agent, a person or firm who imports on consignment, a person or firm who imports under loan or lease, a person or firm who imports for exhibition at a trade fair, a person or firm who imports goods for repair or alteration or further fabrication, etc. Any such owner or purchaser may make entry on his own behalf or may designate a licensed Customs broker to make entry on his behalf and may be shown as the importer of record on the CF 7501. The terms “owner” or “purchaser” would not include a “nominal consignee” who effectively possesses no other right, title, or interest in the goods except as he possessed under a bill of lading, air waybill, or other shipping document.
C.D. 3530-002A. The directive explains that the terms owner and purchaser include any party with a financial interest in a transaction. Owners or purchasers have more than custodial interest in the goods. Id. Owners or purchasers have a financial interest in the goods that goes beyond that of a bailee or nominal consignee. The directive also provides examples of entities that have a “financial interest in the transaction” so as to be considered the owner or purchaser of the goods and afforded the right to make entry: a buying or selling agent; one who imports on consignment, under loan or lease, for exhibition, repair, alteration or further fabrication, etc., enjoy something more than a custodial interest in the goods. Id. “Financial interest” is defined as a nexus between the financial welfare of the owner or purchaser and the imported goods. See H007168 (Aug. 2, 2007) (noting that past rulings have identified “a nexus between the financial welfare of the would-be importer and the imported goods when finding that the financial interest in the goods is sufficient to entitle the would-be importer to act as importer of record”).
We are not able to determine based on the facts provided whether it is the pipeline operator or the third-party company (vendor) hired by the pipeline operator to run a PIG through the pipeline who would qualify as an appropriate importer of record. If the vendor, however, can show that it has a sufficient financial interest in the PIG at the time of entry, it may serve as the importer of record. The pipeline operator noted that it has become aware of at least one instance in which the third-party vendor may have failed to report the entry of a PIG into the United States through one of their pipeline systems in 2017. It should be noted that failure to make entry can be subject to penalty under 19 U.S.C. § 1592.
In the second scenario, a PIG travels from point to point in a contiguous country through the United States. As discussed above, merchandise upon importation into the United States must be entered and payment of duties secured with bond. 19 U.S.C. § 1484(a)(1)(A); 19 C.F.R. § 142.4(a). A pipeline is enumerated as a common carrier under Customs Regulations. 19 C.F.R. § 18.0. Treasury Decision 96-18 (1996) states that the amendment to include pipelines as a common carrier was “to make it clear to the public that Customs Regulations pertaining to transportation in bond apply to transportation by pipeline.”
Customs regulations, 19 C.F.R. § 18.31, contemplates the “pipeline transportation of bonded merchandise” and sets out the procedures for doing so when the pipeline is the only carrier. 19 C.F.R. § 18.31(c). Additionally, 19 C.F.R. § 123.31(b) governs merchandise in transit through the U.S. and states in pertinent part and states that,
From one point in a contiguous country to another through the United States. Merchandise may be transported from point to point in Canada or in Mexico through the United States in bond in accordance with the procedures set forth in §§ 18.1 and 18.20 through 18.24 of this chapter . . . .
Accordingly, for merchandise that travels by pipeline through the United States between points in Canada, the importer will be required to procure a bond.
CBP has addressed this scenario with regard to natural gas that temporarily entered the U.S. from Canada by pipelines before exiting the U.S. by pipeline and returning to Canada for ultimate delivery in HQ H256573 (May 1, 2015). In HQ H256573, the importer proposed transporting natural gas by pipeline through the United States between points in Canada. In that ruling CBP stated that “for purposes of importation, a pipeline is considered a carrier and your client, should it choose not to make entry, and instead only transport the natural gas through the U.S., will be required to obtain a bond and will be bound by CBP in bond regulations.” Id.
Accordingly, as discussed above and in HQ H256573, merchandise upon importation into the United States, must either be entered or payment of duty secured with a bond. To the extent that the PIG will be transported for exportation, a bond is required.
If entry is required, is the pipeline operator also responsible to report a PIGs when it goes through the pipeline (similar to a carrier)? How is this reporting done?
The Internal Advice request asked for a determination as to whether a pipeline operator must provide a report of arrival for an object (in this case a pipeline inspection gadget) arriving in the United States via pipeline much like a vessel operator would be required to do.
The navigation laws administered by CBP require that any vessel arriving “from a foreign port or place” must immediately report its arrival and make formal entry. See 19 U.S.C. § 1433(a)(1)(A) and § 1434(a)(1), respectively. See also CBP regulations 19 C.F.R. §§ 4.2 and 4.3. In addition, 19 C.F.R. § 4.2(a) states, in pertinent part:
Upon arrival in any port or place within the U.S., including, for purposes of this section, the U.S. Virgin Islands, of any vessel from a foreign port or place, any foreign vessel from a port or place within the U.S., or any vessel of the U.S. carrying foreign merchandise for which entry has not been made, the master of the vessel must immediately report that arrival to the nearest CBP facility or other location designated by the port director. The report of arrival, except as supplemented in local instructions issued by the port director and made available to interested parties by posting in CBP offices, publication in a newspaper of general circulation, and other appropriate means, may be made by any means of communication to the port director or to a CBP officer assigned to board the vessel.
Similarly, 19 C.F.R. § 123.1 outlines the instances in which a “report of arrival from Canada or Mexico” is required. In relevant part, this provision provides the procedures by which individuals or vehicles arriving in the United States from Mexico or Canada shall provide a report of arrival. (For vessel arrivals, this provision notes that 19 C.F.R. § 4.2, discussed above, remains the operative provision.)
In reviewing the above authorities, we found no statute or regulation requiring pipeline operators to file a report of arrival for material arriving via pipeline. Similarly, we have found no published ruling in which CBP interpreted the applicable regulations as requiring pipeline operators to provide such a report of arrival. Instead, these regulations relate to arrivals of “vessels” as well as persons and vehicles arriving from Canada or Mexico. See also, CBP Office of Field Operations Vessel Handbook at p. 15 (describing the “types of vessels required to report” arrival).
Based on the analysis above, we find no requirement in the CBP regulations that a pipeline operator must provide a report of arrival for an object entering the United States via pipeline.
If entry is required, what is the appropriate classification of the two types of PIGs?
Classification of goods under the Harmonized Tariff Schedule of the United States (HTSUS) is governed by the General Rules of Interpretation (GRI). GRI 1 provides that classification shall be determined according to the terms of the headings of the tariff schedule and any relative section or chapter notes. In the event that the goods cannot be classified solely on the basis of GRI 1, and if the headings and legal notes do not otherwise require, the remaining GRIs 2 through 6 may then be applied in order.
The EDX is a specialized cylindrical brush, designed to scrub and sweep debris out of the pipeline. When fitted with the “plow blade” attachments, the EDX operates as a squeegee, with the blades scraping debris from the interior of the pipe as the EDX travels through. As a result, the EDX is classified, pursuant to GRI 1, in heading 9603, HTSUS, which provides for both brushes and squeegees. The applicable subheading for the EDX will be 9603.90.80, HTSUS, which provides for “[b]rooms, brushes (including brushes constituting parts of machines, appliances or vehicles), hand-operated mechanical floor sweepers, not motorized, mops and feather dusters; prepared knots and tufts for broom or brush making; paint pads and rollers; squeegees (other than roller squeegees): Other: Other.” The column one, general rate of duty is 2.8% ad valorem.
The Enduro PIG is a transmitter, emitting a frequency that allows an above-ground user to detect the PIG in the pipeline using a compatible receiver. CBP considered a similar system in New York Ruling (“NY”) N014535. In NY N014535, CBP classified an invisible fence system, used to restrict a dog to a particular area. The invisible fence system consisted of a boundary wire, buried around the perimeter of the containment area, a transmitter, and a receiver, which operated as follows. The boundary wire is connected to the transmitter, and the receiver is attached to a dog’s collar. The transmitter emits a radio frequency signal through the boundary wire. When a dog wearing the receiver approaches the boundary wire, the receiver detects the radio frequency emitted by the transmitter through the boundary wire, and issues an audible warning. If the dog does not respond to the audible signal, the collar will use a mild electric shock as a stronger deterrent to keep the dog within the boundaries. CBP classified the transmitter assembly in subheading 8517.69.00, HTSUS, which provides for “… other apparatus for the transmission or reception of voice, images or other data…: Other apparatus for transmission or reception of voice, images or other data…: Other.”
The Enduro PIG operates in a similar fashion, emitting a signal that is detected by an above-ground receiver when the receiver is near the PIG. The transmitter signal provides information to the receiver, regarding the proximity of the PIG. Therefore, the Enduro PIG is classified, by operation of GRI 1, in subheading 8517.69.00, HTSUS, which provides for “… other apparatus for the transmission or reception of voice, images or other data…: Other apparatus for transmission or reception of voice, images or other data…: Other.” The column one, general rate of duty is free.
HOLDING:
In sum, we provide the following responses to your Internal Advice request:
Entry is required for PIGs that enter into the territory of the United States with the intent to enter them into the commerce of the United States. To the extent that the PIGs will be transported through the United States for exportation, a bond for transportation and exportation is required.
There are no requirements in the CBP regulations that a pipeline operator must provide a report of arrival for an object entering the United States via pipeline.
The appropriate classification for the EDX is subheading 9603.90.80, HTSUS. The appropriate classification for the Enduro PIG is subheading 8517.69.00, HTSUS.
You are to mail this decision to the Internal Advice requester. The Office of Trade, Regulations and Rulings will make the decision available to CBP personnel, and to the public on the Customs Rulings Online Search System (“CROSS”) at https://rulings.cbp.gov/, which can be found on the U.S. Customs and Border Protection website at http://www.cbp.gov, or other method of public distribution.
Sincerely,
for Craig T. Clark, Director Commercial and Trade Facilitation Division